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Tyson Foods CEO Resigns

posted on January 9, 2009


MILWAUKEE (AP) — Tyson Foods Inc. said Monday that its president and chief executive, Dick Bond, will step down immediately and be replaced by a former CEO as the world's largest meat processor continues to weather a downturn in the industry.

Bond, who had been CEO since 2006, will be replaced on an interim basis by former chairman and Chief Executive Leland Tollett, the Springdale, Ark.-based company said in a news release. Tollett was CEO from 1995 until he retired in 1998 after nearly 40 years with the company.

The appointment shows that as the beleaguered meat company navigates an industry plagued by volatile commodity costs and an oversupply of meat that is exacerbating already-weak chicken prices, Tyson doesn't plan to experiment, said analyst Chris Bledsoe of Barclay's Capital.

"He's not a spring chicken," Bledsoe said of Tollett, 71. "I think it was a prudent thing to bring in someone with this kind of operating experience."

Tyson Foods has done non-investment banking business with Barclays in the last 12 months, according to a spokeswoman.

Tollett is likely to push forward Tyson's recent efforts to shutter unprofitable plants and cut costs in meat production, Bledsoe said.

"It's a retooling of sorts rather than a major strategic shift," Bledsoe said of Tollett's appointment.

Bond is the second CEO to leave a major meat producer in less than a month, a sign of how troubled the industry is. Pittsburg, Texas-based Pilgrim's Pride Inc., the nation's largest chicken producer, announced shortly after filing for Chapter 11 bankruptcy protection that Clint Rivers would resign as president and chief executive.

It's not clear when business will improve for the meat industry. Although commodity costs have retreated from record highs this summer, there's still a glut of meat on the market, which keeps prices down.

Bond said in November that he expected Tyson's poultry segment to "lose some significant dollars" in its fiscal first quarter, which ended in December. In its pork business, Bond did not expect any record-setting quarters in fiscal 2009 but he said he expected the segment to do well.

The company is due to announce first-quarter earnings Jan. 26.

Tyson's stock has eroded in the past year as the meat industry suffered, not only because of high commodity costs but also from weak restaurant business as consumers cut back on meals out. Shares finished 2008 down 42 percent and on Monday the stock fell more than 10 percent, or 99 cents, to $8.36 after news of Bond's resignation hit.

D.A. Davidson & Co. analyst Tim Ramey lowered his rating on the stock to "underperform" from "neutral" and said he was conflicted about Bond's departure.

"If things were good, Bond would have kept his job," Ramey said in a note to clients. "New CEOS always lower the bar — but it will be hard to lower the bar further than the company already has."

He said the company will likely be in a state of limbo until a new CEO is named, which could cause weakness in the stock. He lowered his target price to $7.50.

Bond said in a statement the decision "is in both my best interest personally, and the best interest of the company."

He came to Tyson in 2001 after the company bought meatpacker IBP Inc., where he was president and chief operating officer.

Tollett, the former Tyson CEO, began working for Tyson in 1959 and was part of a close-knit management team including director Don Tyson that aggressively grew the company from a regional poultry producer into the world's largest meat company.

Ramey said he suspects the Tyson family, which still controls a large portion of the company, didn't like Bond's strategy of boosting chicken production levels even as competitors curbed production in the past year to boost pricing.

Tyson, the number two chicken player behind Pilgrim's Pride, increased chicken production 6 percent in its fourth quarter, which ended Sept. 27. The chicken unit posted a $118 million loss in fiscal 2008, as weak pricing limited its ability to compensate for higher production costs.

"We were disturbed by the way Mr. Bond seemed unconcerned with his risky strategy of continuing to overproduce poultry, bringing massive losses in that segment," Ramey wrote in a note to clients Monday.

But Ramey wrote that it's not entirely clear a production cut is among the reasons for Bond's departure. He pointed to the company on Monday naming Donnie Smith as senior group vice president of poultry and prepared foods and said Smith seemed to agree with Bond about not cutting production.

But Tollett has a strong track record of cutting costs, said Bledsoe, who said investors were frustrated Bond apparently decided not to cut chicken production.

The 61-year-old Bond received compensation valued by the company at about $4.9 million in fiscal 2008, according to an analysis of the 2008 proxy the company filed with the Securities and Exchange Commission last week. In 2007 his compensation was valued at $12.9 million. His 2008 compensation tumbled because the value of stock and stock options he was awarded plunged.


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